Monetizing Intellectual Property: The Basics and Benefits of Licensing

Owners of intellectual property (“IP”) rights associated with inventions and creative works have discovered that “licensing” is an effective way to monetize their IP. A license is a contract by which the owner of a patent, trademark, or a copyrighted work conveys to another party (the “licensee”) the right to make, use, sell, or distribute copies of the corresponding IP. In return, the owner receives financial or other compensation, typically a share of the licensee’s revenues or profits (commonly referred to as “royalties”). For example, the owner of copyright and trademark rights in an iconic IP (such as the Hello Kitty character) could license a company to develop and sell board games and related merchandise focusing on that IP, through crowdfunding campaigns and retail distribution and sale of those products.

Licensing is an attractive option because it streamlines the process and reduces risks associated with manufacturing products and/or providing services. Ideally, the IP owner (having done sufficient due diligence) will be working with someone who already has relevant experience and access to necessary infrastructure. Through licensing, the owner of the IP right is able to enjoy the royalties from the licensee, while the licensee has the opportunity to benefit from IP that it does not own. In the ideal licensing relationship, both the IP owner (the “licensor”) and the licensee both gain from sales of the related products or services. In turn, consumers benefit from having new products and services available to them.

Virtually anything that has a perceived value can be licensed, even beyond patents, trademarks, and copyrights. Technical or business know-how, trade secrets, confidential information, and computer software may be the subject of licenses. License agreements often bundle together various types of subject matter. For example, franchise agreements (which are a unique type of license) often transfer nonexclusive rights to technical and business know-how, trademarks, and copyrights essential to the operation of the business. Computer software licenses may transfer rights associated with patents, copyrights, and trade secrets. Such bundling of intellectual property rights into a single license agreement is the rule rather than the exception.

One benefit of a license agreement is that it can be a flexible arrangement, permitting the parties to have an agreement that is uniquely adapted to their particular circumstances. The license can be “nonexclusive” (reserving to the licensor the right to grant licenses to others), or it can be strictly “exclusive” (thereby giving the licensee the sole right to commercialize the intellectual property in a particular context). License agreements can be tailored such that the licensor retains certain markets while allocating other markets to the licensee. The duration of license agreements can vary depending on the circumstances.

Because license agreements define the rights of the parties in particular IP, caution must be exercised in drafting such agreements, and in negotiating particular provisions. License agreements ordinarily allocate risks between the parties, often through warranties concerning the IP being licensed and the resulting products to be produced by the licensee. Needless to say, counsel should be involved early in the process to assist the client (whether IP owner or licensee) in evaluating risks and negotiating terms.

Stites & Harbison, PLLC’s full-service Intellectual Property & Technology Group regularly assists clients in the acquisition, management, licensing, and litigation of patents, copyrights, trademarks, and trade secrets. For questions, comments, or assistance with any intellectual property-related matters, please contact the author or any of the other attorneys in the IPT group.